MAIN TITLE - Finance
Article Title - What is LIBOR
What is LIBOR
Libor is the acronym for the London interbank offered rate and is the rate at which banks supposedly lend to each other. A number of mortgages are linked to this rate and you may find that if the base rate changes your mortgage payment will not go down immediately as the LIBOR rate may not change accordingly or your mortgage provider may stipulate that your mortgage payments are only reviewed over a certain period (ie 3 months using the applicable LIBOR rate at the time.
Every morning at 11.00 am London time a department of the British bankers association sits down and averages the interbank rates being offered by its members and fixes it for a period of time normally 24 hours.
Following the 2007 banking crisis banks became afraid to lend money to each other and the LIBOR rate rose significantly which had the effect of increasing interest payments on various accounts from credit cards to mortgages for the man in the street. The governments of the world injected a huge amount of money into their respective economies and also slashed the base rates of their territories, this should have had the effect of lowering the LIBOR rate but as the banks were still nervous about lending money the LIBOR remained relatively unchanged. The governments (who had bailed out the banks with significant cash injections exerted as much pressure on the banks as possible which resulted in the LIBOR being reduced.
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